Leverage & Interconnectedness Are Blowing Up Crypto & DeFi

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Yves here. I hate to seem like the old fart that I am, but we warned about crypto from the get-go. Of course, like any momentum trade, those that were in relatively early and got out not too late did well, some phenomenally well. But even more are left holding the bag.

Remember, the use cases for crypto were always crime (money laundering and tax evasion) and speculation. Crypto could never displace existing currencies as a large scale payment mechanism due to slow processing speeds (with with some crypto like Bitcoin becomes slower as the blockchain gets longer) and foreign exchange costs (the cost of trading in and out of a real world currency). If you think the only cost you face is the explicit fee, you are missing what the bid-asked spread is and thus your total effective cost.

By Wolf Richter, editor of Wolf Street. Originally published at Wolf Street

The transcript of the podcast recorded last Sunday, THE WOLF STREET REPORT.

Crypto lender and broker Voyager Digital, which also took deposits and offered yield products with huge interest rates of up to 12%, said in a series of tweets today that it is, “actively pursuing a series of strategic alternatives” and that it is “focused on protecting assets and maximizing value for all customers as quickly as possible.” That’s horrifying language for people who have their cryptos on deposit at Voyager and now cannot get their cryptos or anything else out.

What’s different this time about the collapse of cryptos, compared to last time in 2018, are two huge factors that were barely in their infancy back then: massive leverage and interconnectedness.

All these crypto firms lent to each other and borrowed from each other in cryptos, to speculate in cryptos with borrowed cryptos, and they lent out borrowed cryptos, and they posted cryptos as collateral with each other for more leverage, which is now triggering margin calls, forced selling, and wipeouts cascading through the space. This interconnectedness created huge systemic risks within the crypto space that are now coming home to roost.

On Friday, Voyager Digital had suspended trading and withdrawals. In other words, depositors cannot get their cryptos and collateral out. And they cannot get any fiat out either.

These people are unsecured creditors if Voyager files for bankruptcy. Voyager has already hired restructuring and bankruptcy lawyers and consultants.

Voyager got taken down by the crypto hedge fund, Three Arrows Capital, which blew up amid huge leverage when cryptos plunged.

Three Arrows Capital, which was said to have managed about $10 billion of cryptos as of March, was ordered into liquidation by a court in the British Virgin Islands, where it’s legally headquartered. On Friday, it filed for Chapter 15 bankruptcy in the US.

Voyager had lent 15,250 bitcoins and 350 million USD Coins, a stablecoin, to the hedge fund. Combined, that loan amounts to about $650 million at current prices. And Three Arrows had defaulted on that loan.

Three Arrows ran into trouble when cryptos dropped below a certain level and when Luna, in which it was heavily invested, collapsed by 100%, at which point it received margin calls that demanded more collateral, and when that wasn’t forthcoming, its leveraged positions were liquidated by crypto exchanges including BitMEX and Deribit.

Voyager said in the series of tweets today, Sunday, that it has $1.3 billion worth of cryptos left on its platform – presumably put there by depositors – who are now locked out, and that it has $650 billion in claims against Three Arrows Capital, which Three Arrows has defaulted on.

Voyager trades on the Toronto stock exchange. On Friday, July 1st, when it announced that it had locked out its depositors, the Toronto Stock Exchange was closed in observance of Canada Day. In the US, where Voyager trades over the counter, its shares plunged 31% on Friday, to 30 cents.

Voyager was founded in 2018 and had started trading in Canada in September 2021 at around 16 Canadian dollars a share, and amid immense crypto hype and hoopla rose to over $21 by peak crypto mania in November 2021. The stock has now collapsed by nearly 100% in 10 months. So that wipeout was fast.

Companies like Voyager are in the space called Decentralized Finance. DeFi is doing what the hated and despised fiat banks are doing, except they’re doing it in cryptos instead of fiat, and there is no deposit insurance, and there is no regulation, and everything goes, and there is no central bank for them, and no protections for depositors. In addition, they lured customers into depositing their cryptos there by promising to pay huge interest rates of up to 20% a year. Which is totally nuts.

And now the two concepts of leverage and interconnectedness are tearing up the cryptos, crypto exchanges, the DeFi outfits, crypto stocks, and crypto hedge funds.

The leverage is mostly hidden and tangled up with other crypto firms, and parts of it surfaces only when something blows up. And the interconnectedness causes the blow-ups to cascade through the crypto space.

So now this is an entirely different game of margin calls, forced selling, bankruptcies and liquidations, and preparations for potential future bankruptcies, the total annihilation of some cryptos, including TerraUSD and Luna, and leaving customers with deposits at crypto exchanges and crypto lending platforms twisting in the wind.

There is no regulation and no deposit insurance, and these customers are just unsecured creditors when these highly leveraged platforms collapse. And the loans that were over-collateralized when bitcoin was at $65,000, triggered margin calls as bitcoin plunged to $19,000, and the lenders can seize the collateral, namely the crypto. But since the lenders also traded in their own accounts, with their customers’ deposits, they too got wiped out when cryptos plunged, and it’s just the beginning.

DeFi platforms are like banks, but they take deposits and make loans all in crypto. They’re highly leveraged. They’re using their customers deposits to trade cryptos in their own accounts, and they lured customer deposits with the promise of huge interest rates. And customers borrowed against their cryptos, using their crypto deposits as collateral, to gamble with more cryptos. Everything was leveraged to the hilt and interconnected. And the whole thing collapsed when crypto prices began to collapse.

It has been three weeks exactly – on June 12th – that one of the largest crypto lenders, Celsius Network, which had managed about $12 billion in cryptos as of May, told users that it is halting all withdrawals, swaps, and transfers between accounts.

It blamed extreme market conditions. It said it needed “to stabilize liquidity and operations.” Customers have not gotten their cryptos out. No one knows what’s going on, except that it isn’t good and that Celsius has hired restructuring and bankruptcy lawyers in preparation for a possible bankruptcy filing.

If Celsius files for bankruptcy, its customers with crypto deposits are unsecured creditors, and they might not be able to recover their cryptos, and unlike bank customers in the despised and hated fiat banking system, there is no government deposit insurance. People are just on their own.

Celsius lured customers with annual percentage yields of over 18% on their crypto deposits. That this was either a scam or a super-high-risk gamble should have been clear to everyone. The only time a company is paying 18% interest on debt is if it’s near default. That’s a very high-risk debt, and bond buyers know this, but apparently, not the customers at Celsius.

At least three other crypto platforms have now blocked customers from withdrawing their crypto deposits or collateral, or have limited the amounts: Babel Finance, CoinFlex, and Finblox.

We’re not talking hated and maligned fiat dollars here, but cryptos. They’re borrowing cryptos from each other, they’re lending cryptos to each other, they’re posting collateral in cryptos with each other, they’re paying interest in cryptos, they’re trading cryptos between each other, and they’re trying to bail each other out in cryptos.

And they have to pay each other back those cryptos, and the cryptos have plunged in value and are gone because of leverage that blew up, and because of the interconnectedness that is spreading those blowups around the system.

Leverage and interconnectedness, which were just in their infancy in 2018 when cryptos blew up last time, are now the dominating factors. Back then it was just folks selling their cryptos. Now stuff is blowing up because of leverage. That’s a much more insidious process.

Leverage in the crypto world takes on other forms as well, as exemplified by MicroStrategy. That’s a dotcom darling whose shares spiked ridiculously during the dotcom boom into early 2000, and then totally collapsed. To keep the share price above the delisting limit, in 2002, the company did a 1-to-10 reverse stock split. Then it scraped by as an enterprise software maker, until 2020, when it announced with huge hype and hoopla that it would begin buying bitcoin as one of its key business strategies, and that it would fund those purchases with leverage.

Part of this leverage would come from issuing unsecured convertible bonds, which the bitcoin-crazed crowd ate up at the time. Even if bitcoin goes to zero, the holders of those unsecured bonds have no rights and cannot do anything as long as the company doesn’t default on the interest or principal payments. So this is stable funding, and the concept of margin call doesn’t apply here.

But then, to buy more crypto when the mood was souring just a tad, it issued bonds that were secured by bitcoin and other corporate assets.

Then in March, the company obtained a $205 million term loan that was collateralized by close to 20,000 bitcoins. The loan agreement required a minimum loan-to-value ratio of 50%. If bitcoin drops below $21,000, the minimum loan-to-value ratio would be violated on this $205 million term loan.

According to a filing with the SEC on Wednesday, MicroStrategy now holds about 129,700 bitcoin that it bought at an average price of about $30,700 each, for a total purchase price of nearly $4 billion.

At the current price of bitcoin of about $19,000, MicroStrategy’s gamble has lost the company $1.4 billion from the acquisition cost – all of it borrowed money.

Upon MicroStrategy’s bitcoin purchase announcements in the summer of 2020, it stares spiked from about $110 to over $1,300 by February 2021, multiplying by over 10 in just 8 months. That’s how braindead crazy the whole market had gotten. At which point the shares began to collapse. They’re now back at $164, down by 87% from the ridiculous peak in February 2021.

This enormous amount of speculation, risk-taking with these gambling tokens, and scamming was one of the more sordid parts of the Everything Bubble. It’s a hugely profitable trade if you ride it up and then sell this stuff to the greater fool, and rake in the hated and soon to be worthless fiat dollars. But unfortunately, lots of people that were gullible enough to go for this, lost lots of money, and will lose lots of money. But that’s how bubbles work, that’s just how it is if you participate in that kind of craziness and don’t get out before it vanishes – and two-thirds of it has already vanished.


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  1. Randall Flagg

    Reading this post I’m flashing back to the endless ads this last late winter/spring, (starting with the Super Bowl I believe), featuring Matt Damon and Larry David, telling us this is the wave of the future, it can’t go wrong, blah blah…
    That and hearing the beer/barbeque chatter of regulars inviting in crypto, clear sign of a top.
    Fiat money may be monopoly money as well, but at least I can fold it and put it i my wallet. Bitcoin? it’s just out there, shit, my phone battery died/broke/got lost, now how do I access it?

    1. NotTimothyGeithner

      I’m paraphrasing, but the famous line goes something like the trader knew to get out when the shoe boy was talking about his stock moves.

    2. Leroy R

      An FTX patch has appeared on the uniform major league baseball umpires wear as a form of advertisement for some time now (in addition to broadcast sports emphasis on sports betting). In addition to a constant visual reminder, is placing the ad on an *umpire’s* chest an attempt to inspire confidence in the legitimacy and fairness of the new system?
      Explaining the FTX Patch worn by MLB Umpires

    3. eg

      Most importantly, you need fiat money to pay your taxes, fees and fines. You can’t do that with Bitcoin and its ilk.

  2. The Rev Kev

    And to think that it was only a few short months ago I came across a main stream media article trying to get Millennials to use Crypto as a storage for their retirement savings. I wonder what lessons they will take away from all this happening though.

    1. SocalJimObjects

      Unfortunately, the only lesson a lot of people will end up learning (even future generations) will be “I know it’s a Ponzi scheme, but trust me when I say I am smart and agile enough to exit before others can”.

      1. wilroncanada

        Once someone shouts “fire” a lot of people get trampled to death running for the exits.

        1. SocalJimObjects

          Sure, but young people think they are fast enough to front run the others, whereas old grizzlies know not to be in the theater in the first place.

  3. Joe Well

    >>Crypto could never displace existing currencies as a large scale payment mechanism due to slow processing speeds

    When I first read Bitcoin discussions in online forums circa 2010, this was exactly my response. The people hyping it obviously had 0 experience in ecommerce, or else expected their audience to have 0 such knowledge and to be easily dazzled by the jargon they couched their “Excel spreadsheet in a Dropbox folder” payments processor.

    But now I understand that that is the beauty of it. It is perfectly designed to sort people into marks and sharks.

    If I had swallowed my conscience and distaste for the whole thing and become a shark when I first heard about it, imagine the riches…but my instinctive reaction, like most people’s instinctive reaction when they see a scam, is to pity the marks, not to want to become a shark. I didn’t even occur to me that my common sense and basic common knowledge of payment systems and finance would be a superpower in that world.

    But to be honest, I never imagined the scam could get this big or go on this long. I was not cynical enough. I would have thought I was missing out on maybe millions, not hundreds of millions or billions. Could I have swallowed my conscience if I had known? Anyone else pained by these thoughts?

    1. .human

      Not pained so much as glad that I never got involved. I first looked at bitcoin when it was at about $400. The fact that it was ethereal and required trust in a third party if I did not want to keep my record locally, hardware being basically ethereal also, I had the gut feeling that this was not going to turn out well.

      I bought gold instead.

      1. elissa3

        To the many critiques of gold as a store of value, some of which are reasonable, one can reply: “it exists” (in a tangible form).

        The two things competent nation states will always maintain as monopolies are: currency and “legalized” violence (police/army).

        1. Joe Well

          My criticism of gold is that, like crypto, it destroys the planet, more specifically some of the most special rainforest land on earth.

      2. Old Sarum

        Your gold:

        Make sure that:

        a: You actually hold it, otherwise when the fit hits the shan, you may be worse off than holding fiat.

        b: It is divided in to small slithers of standard weight, size, and purity, otherwise the first time you really need to use it, you could find yourself handing over larger, heavier amounts than you ever bargained for*.


        * “No, we don’t give change!”

    2. fresno dan

      Who would have thought that flowers (i.e., tulips) could ever be an investment of limitless riches? Or “an undertaking of great advantage, but nobody to know what it is.” But it happens because a few people do make lottery sized winnings. And people think, not that it is too late to do the same thing, and that the bottom is due to fall out of the scam, but that I can do it too!

    3. Mikel

      “Excel spreadsheet in a Dropbox folder”

      Excellent description.

      And bitcoin “mining”. It’s solving a puzzle!
      But “solving a puzzle” doesn’t trigger images of digging for valuable minerals in the minds of targets of this scam.

      1. Joe Well

        Thank you. I read the distributed ledger-Dropbox comparison somewhere years ago, but whoever wrote it didn’t phrase it very well so it never took off, which is a pity because when I read it, a lightbulb went off.

  4. Samuel Conner

    A technical question:

    Conventional fiat-currency banks can create new “horizontal” money out of nothing (by lending). This money eventually vanishes when loans are repaid. “Vertical” money issued by the Sovereign (by spending) is permanent, though it can also be destroyed (by taxation).

    Is there a similar “vertical”/”horizontal” distinction in crypto-land? Are DeFi “banks” able to create crypto out of nothing (essentially by making promises that other “banks” will respect, until they don’t.)?

    1. kriptid

      For true DeFi protocols, strictly speaking, the answer is no. All of the current extant DeFi lending protocols require that loans are overcollaterilized at the time the loan contract is entered, even if only slightly. There is a pre-determined price floor at which the asset will be liquidated that everyone agrees to when the loan is given. All of this is handled automatically by the code of the smart contract, so the liquidation will execute at that price threshold unless the user deposits additional collateral to lower the liquidation price. Conversely, at any time, the borrower can pay back the borrowed funds and redeem their collateral.

      The crypto assets used as collateral are not issued by the DeFi protocol itself, but by the blockchain on which the DeFi protocol is built. Some DeFi applications have tokens associated with them, but these are issued mainly for governance purposes, and do not really play a major role in lending/borrowing within the protocol, just the rules that govern it. It’s more analogous to an ownership share in the protocol itself and it may pay a small portion of fees generated by the protocol to the holder, sort of like a dividend.

    2. Other JL

      I was going to say no but after working through an example I think the answer is yes.

      If bank A wants to loan BTC by creating new money, it can’t do it on the chain because the only way to create new coins is mining. It could enter into a contract saying “you have an account with us and we’ll loan you the BTC”, but this would have to be recorded into a parallel ledger. If anyone actually tried to get that loaned BTC out of the bank, the bank would have to provide BTC that it already has access to. But if the counterparty doesn’t actually request the funds, who would know if they’re actually there?

      I don’t think this works on-chain with BTC or any other crypto I’m familiar with. But two points. First, I’m pretty sure a crypto could be defined that would support this directly. Second, big players could absolutely set up parallel, off-chain contracts doing this. I don’t think it would interfere directly with the crypto economy, but it would contribute to leverage and interconnectedness.

      Suppose bank A loans BTC it doesn’t have to bank B, and then bank B does trades using its own (or depositor) funds relying on the loan if it needs to pay out more. Then if bank A collapses and there’s also a rush to exit B, B will have to find more BTC or it’ll go down too. And according to the defi ledger it won’t have any claim to bank A’s assets.

      So it’s a little more complicated than USD because you have to have this set of parallel contracts that are otherwise invisible to crypto participants. But it sure seems like it would act the same AFAICT.

      Probably someone more familiar with finance can fill in details and refine this.

  5. kriptid

    Companies like Voyager and Celsius are not considered Decentralized Finance (DeFi) by those in the crypto space, regardless of what they may claim. These are considered Centralized Finance (CeFi), not to be confused with traditional finance (TradFi) like banks, etc., although some will also use CeFi to describe traditional entities. The easiest test for determining if something is true DeFi is whether or not it requires you to interact with it via a Web3 wallet. If not, and it requires KYC or AML, it cannot, by definition, be DeFi.

    Further distinction is due to the fact that these companies are structured in a traditional manner, with an executive board, CEO, etc. They use venture capital to give out free money via high yields to lure people into using their service. Users interact with them using traditional apps. They require you to give up custody of crypto assets so that they can play leverage games like traditional financial entities, minus the regulation. Essentially, they are the cream of our current financial system grafted onto the unregulated crypto world, a process which started in about 2017 and continues up to the present. They put ‘Decentralized’ in their marketing material when they are anything but. In short, they’re scum, and essentially antithetical to what many of the OGs of the crypto space (especially the hardcore Bitcoiners) believe in. I think of these types of entities as the crypto world’s moral equivalent of the check-cashing store.

    Better examples of DeFi, properly so-called, are something like Aave, Compound, MakerDAO or Uniswap. These are protocols that run on the Ethereum blockchain, where by far the most DeFi liquidity in crypto can be found. Users only interact with them via smart contracts using a wallet built on Web3. The best way to think about them is as large cooperatives where a bunch of people into crypto pool capital and take on a portion of the risk to make loans against overcollateralized crypto assets or act as market makers for speculators. They do not make any unsecured loans and do no speculative trading with user assets. Users can monitor their assets (and the entire protocol’s assets) on chain through a web browser. They run something akin to a full-reserve banking model. These are based on the Decentralized Autonomous Organization (DAO) model of governance, meaning the governance is spread across thousands of token holders who vote to set protocol rules and guidelines. Yields on the order of 0.5-3% are offered, depending on the asset. These protocols are all doing fine right now, and they’ve been growing steadily over the past few years.

    What’s interesting is the DAOs of ‘true DeFi’ have shown themselves to be much more conservative in their approach compared to the CeFi-attempting-to-masquerade-as-DeFi entities with regards to leverage, yields, etc., and they’re all in good health despite all the liquidation-induced turbulence of the past few months. And we can actually verify their health, because their entire portfolio of assets is held on chain and auditable by anyone 24/7, unlike the CeFi entities using leverage and doing back-of-napkin OTC deals with each other in some dark room that we only find out about after they blow up.

    I’m under no illusions that most people in crypto are in it for the money. That’s actually OK with me personally. They’re going to get wrecked like Three Arrows and the rest. I’m happy to ride the wave for the sake of the tech. There are some interesting organizational principles and technologies being tested that I find fascinating and disruptive. It’s quite clear that the DAOs operate far more conservatively and responsibly in this unregulated financial space. It makes me wonder how much of the regulation we feel we need in the traditional financial sector is based on a poor understanding from first principles about how entities in finance should be structured, which is a concept many NCers might find interesting to ponder even if they see red mist every time the topic of crypto arises.

    1. Skip Intro

      The sales-pitch version of the DAO is “the governance is spread across thousands of token holders” The reality of one token-one-vote means that whales can and do run off with the whole pot, just by voting it for themselves. It is only decentralized to the extent that the tokens are not controlled by a few large holders. The fantasy version, as you state it, resonates with the whole ‘invisible hand’ myth, I can see the appeal. You set up plutocracy and hope for a socialist result that benefits all holders.

      1. Late Introvert

        Ya, I don’t see “red mist”, I just see fools who, at best, help hasten environmental collapse “for the sake of the tech”. LOL

  6. Randall Flagg

    And up next,NFTs. I think. Can someone at their convenience explain to my feeble mind how that’s supposed to work? Smells like the cryptocurrency thing to me as well.

    1. Zack Blabbath

      Check out “Line Goes Up” by Dan Olsen, a 2 hour long video on YouTube, …worth every minute!
      It was linked on NC a few months ago

    2. Skip Intro

      A non-fungible token is a cryptographically unique code that can be bought and sold, due to it’s being unique. They are generally associated with some digital artwork, and confer certain ‘rights’ to the owner. On this basis, they become a vehicle for art speculation for everyman, and even lowly artists can mint their own NFTs and sell their works. Of course the artists have to pay the fees, whether their art ever sells. And the ‘rights’ they include are not copyright for the artwork, or any sort of legally recognized license, and many NFTs are made by people with no legal or artistic connection to the art. They are just rights granted by the courtesy of whatever online agency should be tasked with somehow enforcing them. Because they are based on ‘smart’ contracts, all sorts of amazing shenanigans are possible. The art may change or disappear or loot your account. In addition to the recommended ‘Line Goes Up’ video, the site Web3 is Going Great provides a daily tales of greed, deception, and incompetence in the NFT/Web3/crypto scamosphere.

  7. Skip Intro

    If there is one major piece missing from this able analysis, it is the role of price manipulation through self-dealing and wash sales and other practices typically forbidden in regulated exchanges.

    Even now the price is propped up by exchanges locking customers out and basically erasing the balances without letting them hit the market. Of course the exchanges have to do that because they are insolvent. Those balances were already spent during the previous pump phase, buying up more cryptos to keep the line going up.

    And the price is propped up by the messianic crypto cult of HODLers, who confuse the ability to ignore huge losses with wisdom and a vision of a better future.

  8. montanamaven

    I just finished listening to the 4 hour interview with Saifedean Ammous by Lex Fridman on Spotify. Saifedean wrote “The Bitcoin Standard” and “The Fiat Standard”. He calls all other cryptos besides bitcoin as “sh*tcoin”. I know nothing about this and was listening because Lex has gotten much better at interviews. He had Joe Rogan on for the 4th of July. (Rogan is great but totally uninformed about politics and admits as much.) He (Lex) had a great interview with Oliver Stone. And Susan Cain about introverts. As I said I don’t know anything about “crypto” and “Bitcoin”, but Saifedean’s remarks about the princes, dukes and barons prior to the 20th century having to pay there professional armies in gold until they ran out of jewelry to melt down made sense to me. I visited Dresden in 2019 and went to The Green Vault of Adolphus the Strong who financed his Nordic wars against Sweden with his extensive gold and silver jewelry, art objects, and server ware that is on display there. Since WW I , we make “patriots” buy war bonds i.e. borrow money to fund wars and so wars can go on forever and not like running out of gold. Saifedean , we find out at the end of the interview , is a Palestinian and a pacifist (anarchist) and has a hope that Bitcoin will end wars. Naive perhaps? But anybody that has world peace as his objective can’t be all bad. I value my friends here at NC (I go back to Correntwire days in 2009) and look forward to any insights on this person. He calls what we do here in the US as engaging in “spectator sports” as we fund wars and then watch them from afar. He also had a great phrase for the old way before the 20th century. He said that they always said, “let’s take it outside”. In other words, the princes and dukes paid their armies to go to some field outside the cities and fight. Meanwhile, the people in cities knew very little about what was happening in those fields. They even kept doing business with the “enemy”’s city. Food for thought and right up NC’s alley.

  9. Savita

    I recall NC 4-5 years ago saying if crypto ever enters the realm of global finance speculation (forgive my non technical description) it will easily create a global meltdown to make 2008 look like singing in the rain. Looks like we’ve arrived

    There is a great youtube assessment of Celsius which was shared here on NC in the comments. They spent, IIRC, 30 billion on marketing. Including having a stadium named after them. And the coveted Superbowl advertising. Even I here in Australia know Superbowl is the most valuable advertising slot of the year. And I don’t even know what the Superbowl is , about from it having something to do with a ball in a bowl . But consider that Matt Damon was no random choice. Many celebrities have a cultivated image but Damon is arguably one of the most committed to this image. He has a highly cultivated and sophisticated public persona for being ‘ honest and nice’. He has described in interviews this was created after his success with the film Good Will Hunting and he calls it Guy Smiley. To ensure he is boring to the papparazzi and can have a normal life. Honest and nice is precisely the image Celsius sought to embrace. As Rev Kev put it though, Damon wasn’t a shark – he was the mark.

    Technologist Nicholas Weaver has wrote a scathing, and amazing take down of crypto. It’s my go-to piece on the subject now, it covers everything! He closes with what is one of the funniest things about the Celsius situation. A football team in Washington State that accepted, I think, $5 million to advertise them right before they went bust. And now has to promote them for the next 5 years.


    And here is his lecture


    Bruce Schneier with some excellent commentary including the letter he wrote to Congress about the dangers of crypto.


    1. Jason Boxman

      This is having an effect on hiring to be sure. I haven’t gotten an unsolicited contact from a fintech company in a few months. I used to get them weekly. The smart contracts ones were the strangest. I couldn’t make heads or tails of their documentation. We’ve hit peak fintech I guess. I wonder how many prospective employees took the bait?

  10. ambrit

    Will this in any way effect the runaway use of electricity to “generate” bitcoins now that the bloom is off the tulip?

  11. Randall Flagg

    One last bit of idle speculation.

    Working on the assumption that the crypto universe is also a haven for the criminal element. If I was the manager or sponsor of a huge Crypto fund that had within it the deposits of say, tens or hundreds of millions of dollars of certain criminal cartels ( or whatever element that prefers to remain in the dark), and now those funds are, as the South Park clips goes ” And “it’s gone”. (Apologies for the lack of the link), I think bankruptcy is the least of your worries. Time to start living life looking over your shoulder, hire someone to start my car, etc., etc. Not sure your “investors” are going to take a wipeout with a shrug and an ‘Oh Well” frame of mind.

    1. Skip Intro

      One joy of the whole crypto ‘smart contract’ scamosphere is that it is mostly impossible to tell a bug from a backdoor, and there is a gradual suspicion that at least some of the huge hacks were actually insiders exploiting vulnerabilities they created for that purpose.

  12. Susan the other

    Allowing Crypto to run free like some wild horse on loco weed was dereliction of duty at its most blatant. There was never any value in crypto. None whatsoever. It was pure counterfeit with a blockchain – that’s a joke, right? – which was allowed to run its tragic course by all the “authorities” like the SEC; the Comptroller of the Currency, the FBI (what a laugh), and the US Treasury. To name a few.

    1. drumlin woodchuckles

      “Regulating” it would have been “permitting” or even “officially authorising” its existence.

      It is better this way. The sheep and their wool are getting separated. If it goes as far as it deserves to, Bitcoin itself will go extinct along with the others, and put a stop to all that carbon skyflooding.

      Officially regulating crypto would have kept the coinmining and the carbon skyflooding going on forever and forever.

  13. ChrisPacific

    I’m not usually a fan of disaster porn, but in this case it really couldn’t happen to a nicer bunch of people. Hopefully, unlike the GFC, it will only be the ones with fingers in the pie that will end up getting them burned.

    It does all bear a remarkable resemblance to what banks do when it’s laid out this way, which is a good reason why regulations and insurance are needed – it’s the only way to square the circle and have these highly leveraged and vulnerable entities somehow regarded as safe custodians of your money and the bedrock of the financial system.

    I found this article readable but a little repetitive – there were a number of points that were made three or four times over, in almost the same language every time. I don’t remember noticing that about Wolf’s writing before.

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